Ruminations by a non-academic general surgeon from the heart of the rust belt.

Tuesday, April 7, 2009

Watch Out Middle Class

Here's a good article from Clive Crook at the Financial Times. President Obama has made clear his intentions to expand the role of the federal government in our lives to an extent not seen before in our history. Even better, he avers that the middle class won't pay a "single dime" more in taxes. Universal health care, cradle to cubicle subsidized education, the green revolution-- all will be paid for by tax increases on only those 2% of Americans who make more than $250,000 a year. Here's Crook:

Mr Obama intends to squeeze the rich, but the scope for this may be more limited than US liberals would wish. Few Americans seem aware that the US income tax code, as a recent Organisation for Economic Co-operation and Development study showed, is already one of the most progressive.* Even before the rise in top marginal rates promised by Mr Obama, the US income tax collects 45 per cent of its revenues from the highest-income decile. Compare that with Britain at 39 per cent, Canada at 36 per cent, France at 28 per cent, Sweden at 27 per cent and an OECD average of 32 per cent.

This difference is only partly explained by the less-equal US income distribution. The fact that the US has no broadly based national sales tax – value added taxes make Europe’s overall tax codes less progressive still – only underlines the point. The US tax system raises comparatively little revenue; what little it raises already comes disproportionately, by international standards, from the rich.

Wait a second. You mean that wealthier Americans already bear a heavier tax burden than wealthier people in every other country in the world, countries that have much more extensive social safety nets? What about the Obama rhetoric of the rich "doing their fair share" and "leveling the playing field"?

The truth is that raising taxes on just the wealthiest 2% of Americans will not be sufficient revenue to cover this audacious expansion of the federal government. Health care reform alone will cost at least $2 trillion over ten years (of which only $600 billion will come from tax increases on the rich). The bottom line is, we are all going to have to pay for this American Safety Net. It won't just be the "rich". He's coming for you too, middle class. It may not come in the form of higher income taxes, but via more insidious methods; national sales tax, carbon taxes, energy taxes, etc. Just you wait....

22 comments:

Anonymous
said...

"Even before the rise in top marginal rates promised by Mr Obama, the US income tax collects 45 per cent of its revenues from the highest-income decile. Compare that with Britain at 39 per cent, Canada at 36 per cent, France at 28 per cent, Sweden at 27 per cent and an OECD average of 32 per cent."

but everyone in those countries are paying more taxes, so the overall percentage of revenue contribution of the rich may be skewed lower. If our rich are paying tax rates comparable to the middle class in other countries, and our middle class are paying substantially lower rates, your statistic would be valid, but your point would be garbage.

yes, you are contributing more by "percentage of revenue" than the rich in other countries. But if you are overall tax percentage is still lower than say Sweden, which it is, cry me a #$@!ing river.

You seem almost surprised...everyone's taxes is going to go up eventully...even if McCain was in the White House...social security/ medicaire as it stands right now will cause this.Again, so easy to be critical, when no alternative is given. ie. the G'NO'P so called 'budget alternative' What a joke THAT was.Anon. 1:37..you forgot the 90's..when we were all socialists with THOSE tax rates.

anon-It's fine to point out that marginal tax rates were much higher 50 years ago. But do it honestly. Those 90% tax rates only kicked in if you made the modern equivalent of $5 million....

joegrind- I figured a tax post would bring you out the woodwork. But don't make the straw man argument with me, re: the Republicans have no alternative plan. I'm no GOP apologist. I have no faith in our current crop of Republicans on Capitol Hill. There is no legitimate opposition party in America now. The actual point of this post was to elucidate the fuzzy math Obama has been using. The numbers don't add up. Massive overhauling of education and healthcare is expensive. Eventually we'll all pay our "fair share", no matter what our income level.

And I actually think Obama has done a decent job with the financial crisis, FWIW. He could have just nationalized the banks, implemented the Krugman playbook, but he didn't. Private investors who take on these toxic assets of the banks could potentially make a fortune, at minimal risk to themselves.

Buckeye, The temperature in Hell just dipped to 32F...as a Gator alum, didn't think I would agree with a buckeye. (we still love playing you guys anyway.)I am an independent with left-leaning values, what irks me most however are all these unwarranted attacks at Obama. Fox News will soon run out of -isms. I don't think that there is anyone who did/will not believe our taxes are going up...if his plan works...and as of now, I give it a 65% chance of working...it will be through everyone making sacrifices. You do agree that Healthcare needs reform correct? You do believe that if we keep depending on oil (esp. foreign oil) we will be bankrupt? Listen, I hate when Obama uses 'tax the rich', 'level the playing', 'spread the wealth' to push his mandate. I feel this is the wrong approach to redefine the tax code. And I am the biggest supporter of capitalism. I also know that not everyone can be rich, but whoever is the most innovative will come out on top.

I also agree with you regarding the GOP...harking about big govt/ spend spend spend...when after 8 years of that very thing, they are desperately trying to re-invent themselves as in 1994. If they keep making these attacks at someone with a 66% approval rating, they will permanently be the minority party.On a side note...check out last nights' episode of The Daily Show

JoeG-Thanks for the link. Funny stuff. You're right; Obama would be better off just staying true to his natural pragmatist inclinations rather than pandering to the left with big gov, liberal sound bytes (spread the wealth, level the playing field, etc)....

"anon-It's fine to point out that marginal tax rates were much higher 50 years ago. But do it honestly. Those 90% tax rates only kicked in if you made the modern equivalent of $5 million...."

Buckeye, I noticed you didnt respond to my point about your misleading "statistic": the percentage of revenue contribution.

As for your riposte, in 1985 dollars, the top marginal income bracket was income over $333,316.55, at a rate of 50%. Similar numbers are found through out the 70s and 80s. Reganomics only kicked in full force around 87 and we've been on a self correcting course ever since.

Not to mention even if it was "5 million (a number I think you made up)" What would the reactions be from the neo-cons to a 94% tax rate for people making over 5 million be? This is marxism! this is un-godly! nope, this is America circa 1944.

Perhaps the 94% tax rate was a reason the Great Depression lasted as long as it did. Arguably, WWII is what ended the Depression as people became employed to support the war effort.I cannot help but wonder at, even at let's say an effective tax rate of 50%, the amount of job creation in the private sector that could have been done with 2.5mil. Instead of shuffling funds around to feed the bread lines, perhaps entrepreneurs would have stimulated the economy with an increase in available capital.

There seems to be an assumption here that public, universal healthcare would mean spending more. Coming from a European perspective this is most interesting, (but unsurprising given it's the US), when decades of peer-reviewed studies and statistics show how public non-profit healthcare costs less, is more efficient and less bureaucratic than the for-profit alternative.

One would have to be extra-ordinarily ideological to come to any other conclusion.

This is why per-person healthcare costs are so high in the US in comparison to all other developed nations and why the financing and distribution of access is so unfair in the US.

There is no data that the government costs less. There is a lot of data that it spends less. There is also a lot of data comparing specific "outcomes."

There are flaws in all current medical systems. Of course, the cheapest of all of them would be the pre-Medicare US system at 5-6% of GDP in the early 60s, which was also the envy of the world. It was also the closest thing to a free market system that anyone has had since. We can gripe about new technology all we want as being the cause of the run-up in price here, but the fact of the matter is that in every other industry, new technology brings costs down. It also had essentially no effect on medical costs as a percentage of GDP during the entire time before Medicare.

I agree that the European systems ARE more efficient financially than the US system, but the US isn't a free market system, and comparing it to the European systems as a standard for the failure of free market healthcare economics is ridiculous. The government pays 50% of healthcare costs, and that percentage continues to rise as prices rise.

Two things run up the price of US healthcare, and these things feed off of each other:1. We will not ration care. The free market naturally rations care, because when something can't be afforded, it can't be done. Charity will rarely (and certainly not always) submit to marginal tratment. On the other hand, the government cannot effectively ration without damaging its popularity.2. Sue happy Americans are still getting large judgements over the possible benefits of marginal treatment and testing. If you can be sued for not ordering a CT brain on everyone who bumps his head for fear of getting sued over a future blead that may or may not have been picked up on CT, you are certainly going to keep ordering CT brains on everyone.

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

MiamiMed wrote: "There is no data that the government costs less. There is a lot of data that it spends less. There is also a lot of data comparing specific "outcomes.""

Au-contraire MiamiMed, you would have to be extremely blind to ignore the mountains of data that public healthcare costs less. There are mountains of peer-reviewed studies, published in respected medical journals, (and going back decades since the end of WWII) which highlight how public healthcare costs less, is more efficient and less beuracratic than for-profit corporate healthcare.

Given these studies and meta-analyses between for-profit and public non-profit, which show the efficiency and reduced cost of public non-profit delivery, it is not surprising that comparisons of international nation data and statistics, (from the OECD etc) show quite clearly, how per-person costs in the US are higher than in Europe or other developed nations.

Unsurprising because the US has the highest for-profit element of all developed nations. (no-one is saying there is no public healthcare in the US, this is a strawman point)

Unfortunately these high costs are being mimicked in the Chinese healthcare system with it's pro-corporate healthcare approach and to terrible costs and outcomes.

Basically the evidence is so clear at this point, that denying it is like denying a correlation between smoking and lung cancer!

Now I can link to these studies if you want and to the statistics (oecd etc) which show the high person costs of American healthcare, but there really is no point when faced with market-fundamentalist, ideological blinkeredness.

I never denied that the US has high person costs in healthcare. I said that it didn't before Medicare. What I meant by my original comment was that we do spend more per person, but that doesn't necessarily mean that you are getting equivalent treatment for less money in other nations. There ARE mountains of data showing that the US spends more than other nations, but this is meaningless without an understanding of what else is being paid for and why we are paying for it.

Before Medicare, US healthcare was largely NOT corporate (just to break this link that permeates the mind of all socialists and big government advocates that free market = corporatism). The majority of hospitals were independent entities. The majority of physicians were in independent practice or small groups. However, compliance with the ever growing regulatory agenda that comes with government payment forces people to band together in defense of compliance issues. The fact that the government has allowed insurance companies to form oligopic control in a number of markets while simultaneously limiting physicians abilities to band together short of forming large multi-specialties armies has something to do with it too. Medicare has stifled competition. It has prevented new hospitals from opening. It prevents alternative mechanisms for treatment. It would be easy for the government to save money by simply eliminating the cutting edge of medicine, but that certainly isn't a good choice in the long run.

I am a free market idealist, but I only became so when I spent a great deal of time going through the data and determining that government control never (I said never) gives you the same thing for a lower price. I certainly didn't start out believing that. If you'd like to visit my blog and drop me an e-mail (so that we don't take over Buckeye's blog), I'd be happy to go over the intricate details comparing the US system to those in Europe. I think you'd be surprised to find out how much of that research I've already read.

I never denied that the US has high person costs in healthcare. I said that it didn't before Medicare. What I meant by my original comment was that we do spend more per person, but that doesn't necessarily mean that you are getting equivalent treatment for less money in other nations. There ARE mountains of data showing that the US spends more than other nations, but this is meaningless without an understanding of what else is being paid for and why we are paying for it.

Before Medicare, US healthcare was largely NOT corporate (just to break this link that permeates the mind of all socialists and big government advocates that free market = corporatism). The majority of hospitals were independent entities. The majority of physicians were in independent practice or small groups. However, compliance with the ever growing regulatory agenda that comes with government payment forces people to band together in defense of compliance issues. The fact that the government has allowed insurance companies to form oligopic control in a number of markets while simultaneously limiting physicians abilities to band together short of forming large multi-specialties armies has something to do with it too. Medicare has stifled competition. It has prevented new hospitals from opening. It prevents alternative mechanisms for treatment. It would be easy for the government to save money by simply eliminating the cutting edge of medicine, but that certainly isn't a good choice in the long run.

I am a free market idealist, but I only became so when I spent a great deal of time going through the data and determining that government control never (I said never) gives you the same thing for a lower price. I certainly didn't start out believing that. If you'd like to visit my blog and drop me an e-mail (so that we don't take over Buckeye's blog), I'd be happy to go over the intricate details comparing the US system to those in Europe. I think you'd be surprised to find out how much of that research I've already read.

I don't know about other european countries, but here in the Netherlands the tax percentage for the highest incomes (starting at around 50.000 euros) is 52% and I don't think we have the highest tax rates in europe.

If people want to live on the government dole, they should be the ones to pay 52% of their take. Those who currently pay the bulk of the taxes don't typically utilize the services covered. The entitlement mentality that larger incomes should pay for the services of lower ones is one that discourages productivity and creativity. Why uncouple one of the most powerful motivators in life (money) from reward?

Oh and if you want to see how the US Government would run health care. Imagine if going to the hospital was like going to the Post Office on a Friday Afternoon.

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